AAR Clarifies Tie-in Pipeline Outside Factory Premises Ineligible for ITC under Section 17(5)(c): Not Covered as “Plant and Machinery” [Read Order]

The applicant, H-Energy Gateway Pvt. Ltd., is engaged in the regasification of Liquefied Natural Gas (LNG) and supplying it to customers. As part of its project, the applicant constructed an LNG regasification terminal utilizing an FSRU.

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The project required a “Tie-in Pipeline” to deliver regasified LNG from the FSRU to the National Grid, as pipeline transport was the only technically viable and safe method for delivering high-pressure natural gas.

Seeking to avail input tax credit (ITC) on goods and services used for the construction of the Tie-in Pipeline, the applicant approached the Advance Ruling Authority (AAR).

The main legal question was whether the Tie-in Pipeline qualifies as "plant and machinery" under the CGST Act and hence eligible for ITC, or whether it is specifically excluded as “pipeline laid outside the factory premises” under the Explanation to Section 17(5)(c).

The applicant submitted that the Tie-in Pipeline is an integral and inseparable component of its business activity and amounts to “apparatus, equipment or machinery” fixed to earth and “used for making outward supply.”

The appellant contended that the pipeline should be treated as "plant and machinery" and is not covered by the exclusion in Section 17(5)(c) because the FSRU is not a “factory premises” and the exclusion should only apply to pipelines outside conventional factory premises.

However, the Jurisdictional Officer argued that the exclusion applies, and ITC was not admissible.

After reviewing the definitions, facts, and submissions, the AAR reasoned that the FSRU, where the manufacturing process of regasification occurs, qualifies as "factory" premises even though it is not a land-based structure, based on the definition under the Factories Act, 1948.

The pipeline joins the FSRU to the National Grid and is unquestionably laid outside the factory premises.

The Explanation to Section 17(5) of the CGST Act expressly excludes "pipelines laid outside the factory premises" from the definition of "plant and machinery".

The bench comprising D.P. Gojamgunde (State Member) and Priya Jadhav (Central Member) emphasized the principle that exclusion clauses in taxing statutes must be strictly interpreted, following Supreme Court observations that no tax or tax credit should be allowed by implication or analogy that is not expressly covered by the statute.

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Accordingly, the AAR concluded that the applicant is not entitled to avail ITC of GST paid on goods and services used for construction of the Tie-in Pipeline from the FSRU to the National Grid, since under Section 17(5)(c) of the CGST Act, 2017, as pipelines laid outside factory premises are expressly excluded from the definition of “plant and machinery

Thus, the AAR clarified, a Tie-in Pipeline laid outside factory premises is ineligible for ITC under Section 17(5)(c) as it is not covered as ‘plant and machinery’.

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